Kosmos Energy Ltd.KOS
Kosmos Energy Ltd. Income Taxes Disclosure
Income Taxes
We provide for income taxes based on the laws and rates in effect in the countries in which our operations are conducted. The relationship between our pre‑tax income or loss from continuing operations and our income tax expense or benefit varies from period to period as a result of various factors which include changes in total pre‑tax income or loss, the jurisdictions in which our income (loss) is earned and the tax laws in those jurisdictions.
During the year ended December 31, 2024, our net deferred tax liability decreased by approximately $52.1 million primarily as a result of a tax rate change in Equatorial Guinea (discussed below) and the timing reversal of temporary differences. During the year ended December 31, 2023, our net deferred tax liability decreased by approximately $107.6 million primarily as a result of a $222.3 million impairment related to the TEN Field, which resulted in a reduction in our deferred tax liability of $77.8 million, with the remaining $29.8 million decrease in our deferred tax liability primarily related to the timing of the reversal of temporary differences. During the year ended December 31, 2022, our net deferred tax liability decreased by approximately $242.7 million, primarily as a result of a $450.0 million impairment related to the TEN Field, which resulted in a reduction in our deferred tax liability of approximately $157.6 million, and a $44.6 million of the decrease related to closing the Tullow pre-emption transaction in March 2022 (See Note 3 - Acquisitions and Divestitures), and the remaining $40.5 million decrease in our deferred tax liability primarily related to the timing of the reversal of temporary differences.
Income (loss) before income taxes is composed of the following:
| Years Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| United States | $ | (162,243) | $ | (88,458) | $ | 73,529 | |||||||||||
| Foreign | 512,055 | 460,193 | 263,538 | ||||||||||||||
| Income before income taxes | $ | 349,812 | $ | 371,735 | $ | 337,067 | |||||||||||
The components of the provision for income taxes attributable to our income (loss) before income taxes consist of the following:
| Years Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Current: | |||||||||||||||||
| United States | $ | (1,074) | $ | 865 | $ | 7,174 | |||||||||||
| Foreign | 213,209 | 264,910 | 300,829 | ||||||||||||||
| Total current | 212,135 | 265,775 | 308,003 | ||||||||||||||
| Deferred: | |||||||||||||||||
| United States | 2,933 | 551 | 84 | ||||||||||||||
| Foreign | (55,107) | (108,111) | (197,571) | ||||||||||||||
| Total deferred | (52,174) | (107,560) | (197,487) | ||||||||||||||
| Income tax expense | $ | 159,961 | $ | 158,215 | $ | 110,516 | |||||||||||
Our reconciliation of income tax expense (benefit) computed by applying our statutory rate and the reported effective tax rate on income or (loss) from continuing operations is as follows:
| Years Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Tax at statutory rate | $ | 72,167 | $ | 78,064 | $ | 70,784 | |||||||||||
| Foreign income (loss) taxed at different rates | 66,634 | 48,768 | 20,663 | ||||||||||||||
| Non-deductible compensation | 8,813 | 5,915 | 3,012 | ||||||||||||||
| Non-deductible and other items | 7,216 | 2,243 | 3,993 | ||||||||||||||
| Tax shortfall (windfall) on equity-based compensation, net | (11,615) | (3,201) | 673 | ||||||||||||||
| Change in valuation allowance | 72,179 | 26,426 | 11,391 | ||||||||||||||
Change in statutory tax rate | (55,433) | — | — | ||||||||||||||
| Total tax expense (benefit) | $ | 159,961 | $ | 158,215 | $ | 110,516 | |||||||||||
Effective tax rate | 46 | % | 43 | % | 33 | % | |||||||||||
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(1)The effective tax rate during the years ended December 31, 2024, 2023 and 2022, were impacted by (gains) and losses of $155.3 million, $(4.0) million and $21.0 million, respectively, incurred in jurisdictions in which we are not subject to taxes and therefore do not generate any income tax benefits or where there are valuation allowances offsetting the corresponding deferred tax assets.
The effective tax rate for the United States is approximately (1%), (2%) and 10% for the years ended December 31, 2024, 2023 and 2022, respectively. The effective tax rate in the United States is impacted by the effect of non-deductible expenditures and equity-based compensation tax shortfalls and tax windfalls equal to the difference between the income tax benefit recognized for financial statement reporting purposes compared to the income tax benefit realized for tax return purposes. For the years ended December 31, 2024, 2023 and 2022, our effective tax rate in the United States is impacted by changes in valuation allowances on a portion of our deferred tax assets totaling $33.1 million, $12.1 million and $(12.3) million, respectively.
The effective tax rate for Ghana is approximately 35%, 36% and 35% for the years ended December 31, 2024, 2023 and 2022, respectively. The effective tax rate in Ghana is impacted by non-deductible expenditures.
The effective tax rate for our producing entity in Equatorial Guinea is approximately (68)%, 35% and 36% for the years ended December 31, 2024, 2023 and 2022, respectively, and is impacted by non-deductible expenditures. Equatorial Guinea changed the statutory rate from 35% to 25%, with an effective date of January 1, 2025. We remeasured the net deferred tax liability during the fourth quarter of 2024 which impacted the effective tax rate for the year.
Our operations in other foreign jurisdictions have a 0% effective tax rate because they reside in countries with minimal activity, a 0% statutory rate, or we have incurred losses in those countries and have full valuation allowances against the corresponding net deferred tax assets.
Deferred tax assets and liabilities, which are computed on the estimated income tax effect of temporary differences between financial and tax bases in assets and liabilities, are determined using the tax rates expected to be in effect when taxes are actually paid or recovered. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The tax effects of significant temporary differences giving rise to deferred tax assets and liabilities are as follows:
| December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In thousands) | |||||||||||
| Deferred tax assets: | |||||||||||
| Foreign capitalized operating expenses | $ | 247,306 | $ | 209,453 | |||||||
| Foreign net operating losses | 34,764 | 14,458 | |||||||||
| United States net operating losses | 96,945 | 78,706 | |||||||||
| United States deferred interest expense | 69,051 | 43,411 | |||||||||
| Equity compensation | 11,164 | 10,867 | |||||||||
| Asset retirement obligation and other | 98,056 | 78,024 | |||||||||
| Total deferred tax assets | 557,286 | 434,919 | |||||||||
| Valuation allowance | (405,831) | (333,651) | |||||||||
| Total deferred tax assets, net | 151,455 | 101,268 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Depletion, depreciation and amortization related to property and equipment | (411,234) | (420,066) | |||||||||
| Other deferred tax liabilities | (48,937) | (42,087) | |||||||||
| Total deferred tax liabilities | (460,171) | (462,153) | |||||||||
| Net deferred tax liability | $ | (308,716) | $ | (360,885) | |||||||
The Company has foreign net operating loss carryforwards of $128.6 million. Of these losses, we expect $70.7 million to expire in 2029 and, $58.0 million will not expire. Additionally, the Company has $461.6 million of United States net operating loss that will not expire. All of these losses currently have offsetting valuation allowances.
The Company is open to tax examinations in the United States for federal income tax return years 2021 through 2023, in Ghana for income tax return years 2020 through 2023, in Equatorial Guinea for income tax return years 2019 through 2023, in the United Kingdom for income tax years 2021 through 2023, in Senegal for income tax years 2020 through 2023, and in Mauritania from 2021 through 2023.
As of December 31, 2024, the Company had no material uncertain tax positions. The Company’s policy is to recognize potential interest and penalties related to income tax matters in income tax expense.
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About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.